Why Big Law Firms Implode

http://ow.ly/aLQsR

An article by Timothy B. Corcoran posted on his blog Corcoran's Business of Law Blog.

This article looks at the current situation involving the law firm Dewey LeBoeuf, and provides rationale explaining how such large law firms can end up in the difficult situation that the firm presently finds itself.

The first point the author makes is that bigger is not necessarily better.  The article states, "...most law firm leaders believe the primary way to increase revenue is to increase the number of timekeepers.  But savvier leaders know that revenue is not the same as profit, and there are more lucrative approaches to generating profit than by taking on the huge overhead associated with adding timekeepers through a merger.  (For example, embracing alternative fee arrangements that ensure a project fee while reducing the cost of legal service delivery through better project management.)  If the goal is to generate profits — which is a lesson every MBA student learns on day one — then firm size is just one of the many factors to explore.  An examination of numerous law firm combinations that were predictably dilutive suggest that the real catalyst for growth was ego and a poor grasp of what drives profits."


The article goes on to discuss a second point, the owners need to own, and the workers need to work.  The author states, "In today’s modern large law firm there is a distinct prestige associated with the title “partner” but in many cases the underlying fiduciary responsibilities of the partnership business form have been lost. In fact, as Dewey’s situation has revealed, many partners are quite content to not get involved in administration and prefer to merely pocket a rich paycheck, which is a shocking abdication of their fiduciary responsibility and poses a significant risk — if not to the firm, then to their personal net worth!"

The article goes on to discuss another point, which pertains to falling first in a avalanche.  The author writes, "It takes different skills to to manage a law firm when demand is no longer a constant, when unfettered pricing discretion gives way to increased buyer leverage, when critical raw materials become commodities, than the traditional political and consensus-building skill set of past law firm leaders."

The final point discussed is that being too big to fail, can also result in being too big to trust. The author states, "...what every law firm implosion has shown us is that many partners have joined a firm in order to benefit from the brand strength, but have no interest or incentive in sharing clients or helping the firm as a whole succeed. Too many partners “protect” their clients in order to retain maximum portability should a better offer materialize elsewhere. And this lack of a common bond poses a challenge in a troubled business climate when the bankers come calling and ask partners to provide personal guarantees to secure lines of credit."

P.S.  Stay tuned, as further major developments regarding Dewey LeBeouf may take place later this week according to recent reports.